SBA Communications Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Mark DeRussy, Vice President of Finance
• Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer
• Jeffrey A. Stoops, Director, President and Chief Executive Officer

Analysts

• Amir Razban, JPMorgan Chase & Co.
• Simon Flannery, Morgan Stanley
• Ric Prentiss, Raymond James
• David Barden, Bank of America Merrill Lynch
• Nicholas Del Deo, MoffettNathanson
• Michael Rollins, Smith Barney Citigroup
• Sami Badri, Credit Suisse Group AG
• Greg Williams, Cowen Inc
• Brett Feldman, The Goldman Sachs Group, Inc.
• Walter Piecyk, LightShed Ventures
• David Guarino, Green Street Advisors
• Eric Luebchow, Wells Fargo & Company
• Brandon Nispel, KeyBanc Capital Markets
• Matt Niknam, Deutsche Bank Aktiengesellschaft
• Jon Atkin, RBC Capital Markets

Presentation

[Operator]

Ladies and gentlemen, thank you very much for standing by and welcome to the SBA First Quarter Results for 2022 Conference. [Operator Instructions] And I would now like to turn the conference over to our host, Mark DeRussy, Vice President of Finance. Please go ahead, sir.

[Mark DeRussy, Vice President of Finance at SBA Communications]

Good evening, everyone, and thank you for joining us for SBA's first quarter 2022 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer, and Brendan Cavanagh, our Chief Financial Officer. Some of the information we will discuss on this call is forward looking, including but not limited to, any guidance for 2022 and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today April 25 and we have no obligation to update any forward-looking statements that we may make.

In addition, our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.

With that, I will now turn it over to Brendan to discuss our first quarter results.

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Thanks, Mark. Good evening. SBA started the year off with a very strong quarter with many of the results ahead of our internal expectations and we continue to anticipate a solid performance throughout 2022. Total GAAP site leasing revenues for the first quarter were $559.4 million and cash site leasing revenues were $551.4 million. Foreign exchange rates were slightly ahead of our previously forecasted FX rate estimates for the quarter positively impacting revenues by approximately $2.3 million. They were also a tailwind on comparisons to the first quarter of 2021 positively impacting revenues by $2.3 million on a year-over-year basis. Same tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant currency basis, was 4.3% over the first quarter of 2021, including the impact of 3.1% of churn. On a gross basis, same tower growth was 7.4%.

Domestic same tower recurring cash leasing revenue growth over the first quarter of last year was 6.4% on a gross basis and 3.7% on a net basis, including 2.7% of churn. Domestic operational leasing activity or bookings representing new revenue placed under contract during the first quarter was very strong again and materially higher than the first quarter of last year. And we continue to replenish our domestic new lease and new amendment application backlog, which remains very healthy at quarter end. These backlogs support our expectations for continued strong domestic operational leasing activity throughout the rest of 2022.

During the first quarter, amendment activity represented 55% of our domestic bookings with 45% coming from new leases. The Big 4 carriers of AT&T, T-Mobile, Verizon and DISH represented 95% of total incremental domestic leasing revenue signed up during the quarter. Internationally, on a constant currency basis, same tower cash leasing revenue growth was 7% net including 4.8% of churn or 11.8% on a gross basis, international leasing activity was very good again, and we continue to see increasing customer activity levels in many of our markets. International growth continues to climb higher in part due to increased inflation -- I'm sorry, in part due to increased inflation-based escalators. In Brazil, our largest international market, we also had another solid quarter of leasing activity. Gross same tower organic growth in Brazil was 13.3% on a constant currency basis. During the first quarter, 82.1% of consolidated cash site leasing revenue was denominated in US dollars. The majority of non-US dollar denominated revenue was from Brazil with Brazil representing 12% of consolidated cash site leasing revenues during the quarter and 8.8% of cash site leasing revenue excluding revenues from pass through expenses.

Tower cash flow for the first quarter was $445.3 million. Our tower cash flow margins remain very strong with the first quarter domestic tower cash flow margin of 84.6% and an international tower cash flow margin of 68% or 90.3% excluding the impact of pass-through reimbursable expenses. International tower margins were modestly impacted by our new less mature Tanzania assets. Adjusted EBITDA in the first quarter was $423.8 million. The adjusted EBITDA margin was 69.3% in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 74.2%. Approximately 97% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter.

During the first quarter, our services business produced record results for the fourth quarter in a row with $60.3 million in revenue and $14.6 million of segment operating profit. We also continue to replenish and build even higher our services backlogs, finishing the quarter at the highest level in our company's history. Based on this backlog and the continuing high activity levels by our customers, we have raised our outlook for increased contributions from our services business throughout the balance of 2022.

AFFO in the first quarter was $324.3 million. AFFO per share was $2.96, an increase of 14.7% over the first quarter of 2021. During the first quarter, we continue to expand our portfolio acquiring 1,807 communication sites for total cash consideration of $215.4 million, which includes 1,445 sites for $176.1 million closed on January 4 in our previously disclosed acquisition from Airtel Tanzania. We also built 86 new sites in the quarter. Subsequent to quarter end, we have purchased or are under agreement to purchase 358 sites in our existing markets for an aggregate price of $127.9 million. We anticipate closing on these sites under contract by the end of the year. In addition, subsequent to quarter end, we closed on the acquisition of a standalone data center in Sao Paulo, Brazil for cash consideration of approximately $49 million. The data center currently produces approximately $8.3 million US in annual revenue and $3.5 million US in annual adjusted EBITDA. This acquisition was done in support of our continuing evaluation and efforts around the potential expansion of mobile edge computing to our tower sites.

In addition to new tower and other assets, we also continue to invest in the land under our sites. During the quarter, we spent an aggregate of $8.7 million to buy land and easements and to extend ground lease terms. At the end of the quarter, we owned or controlled for more than 20 years, the land underneath approximately 71% of our towers and the average remaining life under our ground leases including renewal options under our control is approximately 36 years.

Looking ahead now, this afternoon's earnings press release includes our updated outlook for full year 2022. We have increased our outlook for most of our key metrics from the outlook we previously provided with our prior quarter earnings release. These increases are partially due to revised expectations for better foreign currency exchange rates than previously assumed. These FX changes have contributed an increase to our revenue outlook of approximately $21 million and our adjusted EBITDA outlook of approximately $13 million. In addition, we have increased the midpoint of our outlook for site leasing revenue by $17 million on a constant currency basis. This increase is due to several factors including lower domestic churn impact during 2022 as a result of longer decommissioning cycles as compared to SBA's initial estimates, higher international CPI based escalators, higher reimbursable and miscellaneous one-time revenue items and contributions from acquisitions completed during and after the quarter, all of which was partially offset by increased churn in Panama. On April 6, Digicel Panama, one of our primary customers in Panama, announced that they intend to apply for voluntary liquidation and withdraw from the telecommunications market in Panama. While there are likely many developments and steps to take place over the coming months, we have increased our projected 2022 churn impact by approximately $6 million to account for the loss of all leasing revenue from Digicel Panama for the balance of the year.

Notwithstanding this one churn issue, as noted, there were a number of very positive developments in our business over the last 2 months that have resulted in a significant increase in our full year revenue outlook. In addition to the leasing benefits I just mentioned, we also raised the midpoint of our services revenue outlook by $27 million or over 13% due to our very strong first quarter results and the continuing strength of our backlogs. The strength of both our leasing and services business has allowed us to raise the midpoint of our full year outlook for AFFO per share by $0.24.

Our full-year 2022 outlook does not assume any further acquisitions beyond those under contract today and the outlook also does not assume any share repurchases other than those completed as of today. However, we are likely to invest in additional assets or share repurchases or both during the rest of the year. Our outlook for net cash interest expense and for AFFO did not contemplate any further financing activity in 2022. However, we will continue to look for opportunities to continue to optimize our balance sheet.

With that, I will now turn things over to Mark, who will provide an update on our liquidity position and balance sheet.

[Mark DeRussy, Vice President of Finance at SBA Communications]

Thanks, Brendan. We ended the quarter with $12.7 billion of total debt and $12.4 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 7.3 times, well within our target notwithstanding a substantial amount of capital allocated in the first quarter. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 5.3 times, the highest in the company's history. As at the end of the quarter, the weighted average interest rate of our outstanding debt was 2.6% with a weighted average maturity of approximately 4.6 years, and the interest rate on 92% of our outstanding debt is fixed. As of today, we have $590 million outstanding under our $1.5 billion revolver.

During the quarter, we repurchased approximately 1.3 million shares of our common stock for $431.6 million at an average price per share of $332. Included in these amounts subsequent to our previous disclosure of share buybacks in our fourth quarter earnings release is the repurchasing of 253,000 shares for $81.6 million at an average price per share of $322.10. All the shares repurchased were retired. We currently have $504.7 million of repurchase authorization remaining under our $1 billion stock repurchase plan.

The company's shares outstanding at March 31, 2022, were 107.8 million compared to 109.3 million at March 31, 2021, a reduction of 1.4%. In addition, during the first quarter, we declared and paid cash dividend of $76.9 million or $0.71 per share, and today, we announced that our Board of Directors declared a second quarter dividend of $0.71 per share, which is an increase of 22.4% over the second quarter of last year. It's payable on June 14, 2022 to shareholders of record as of the close of business on May 19, 2022.

And with that, I'll now turn the call over to Jeff.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Thanks, Mark, and good evening, everyone. As you've heard, we had a very strong start to the year with strong operating and financial results again generating double-digit percentage growth in AFFO per share. Our better than expected results combined with continued elevated activity levels with our customers have set us up well for the balance of this year. We have increased our outlook for full year revenues by $65 million in AFFO per share by $0.24. These upward revisions are indicative of the positive environment we are currently in. The U.S. market remains particularly strong. Each of our U.S. carrier customers remain busy during the quarter, signing up new leases and amendments, and generally investing in the build-out of their networks through the deployment of new spectrum bands. T-Mobile continued their nationwide deployment of 2.5-gigahertz and 600-megahertz spectrum. Verizon and AT&T increased their 5G related signings with us with particular focus on C-Band oriented deployments and DISH continued signing up new lease agreements actively in support of their nationwide 5G network build-out. These carrier activity levels also drove meaningful U.S. services results where we produced record services revenue and margin results for the fourth quarter in a row. Our backlogs also continue to replenish and support our confidence in continued strong performance.

Internationally, we had another strong quarter, finishing ahead of our internal expectations for organic tower leasing and new-build activity in most of our markets. During the first quarter, we signed up 49% of new international revenue through new leases and 51% through amendments to existing leases, coupled with increased escalators due to higher consumer price indexes in many of our markets. This leasing activity drove some of our strongest organic international leasing revenue growth in years. We are also off to a good start integrating our new Tanzanian operations and we continue to build new sites and tower backlogs in the Philippines. In addition, we recently acquired a new data center in Sao Paulo that we believe will allow us to more fully explore the potential for tower edge mobile computing in Brazil. We believe this data center can act as a hub for tower edge data centers and C RAN deployment based on discussions with some of our carrier customers in Brazil. Overall, internationally, we have a lot of very exciting things happening, and we continue to believe that 2022 will be a very good year.

In addition to our strong operational performance during the first quarter, we also continue to execute well with regard to our balance sheet and capital allocation. We meaningfully increased our dividend and invested in significant asset additions, as well as significant stock repurchases. We were able to make these investments, while maintaining our net debt to adjusted EBITDA leverage at 7.3 times right in the middle of our target range of 7 to 7.5 times and our weighted average cost of debt remains largely fixed and at our all-time low of 2.6%. We believe our ability to manage leverage while continuing to invest in our business is critical during this current time of more broadly increasing interest rates. We are well positioned to continue to grow our business, but also to weather any kind of challenging macro environment.

We are very pleased with our start to 2022. I'm going to keep my comments brief as I believe our results and increased outlook tell the story very well. I believe the rest of the year will be similar to the first quarter excellent blocking and tackling on our part against a very strong demand environment. We are in a great industry during a time of increasing organic growth and we are more financially healthy than at any time in our history. We have great confidence in the balance of the year and look forward to helping our customers achieve their ambitious network goals.

I want to finish by again thanking our team members for their commitment and contributions to our success, and with that, Colin, we are now ready for questions.

Questions and Answers

[Operator]

Thank you, sir. [Operator Instructions] And we will go to the line of Phil Cusick with JPMorgan.

[Amir Razban, Analyst at JPMorgan Chase & Co.]

Hi, this is Amir for Phil. Two, if I may. So, you guys mentioned lower expectations for churn this year, you reconsider the timing of the Sprint and T-Mobile merger revenues falling off. Can you give us an update on maybe how your expectations for long-term churn with them have changed? And then secondly, is the data center acquisition within guidance and does this kind of indicate SBA's leaning more into the mobile edge compute opportunity?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Thank you. Just Amir, on the churn question, we don't have any real changes to our long-term expectations. What you're seeing is a slight shift in timing. So a little bit less of an expectation in this year, but ultimately those incremental dollars would just move to next year. So what we've given out in the past in terms of expectations each year is generally the same as it's been before.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Yeah. On the data center question. I think it's really no change in our activity trajectory and direction around mobile edge that we've been talking about now for I guess at least a year. I would look at this as a extension of what we're doing in the U.S. to our largest international market, Brazil, and we think it will continue our learning and interactions with our customers and I would say so far that the results are encouraging and we continue to believe that we will be benefited and that the mobile edge will in fact have value created or create value at our tower sites and we think these these data center investments albeit modest are going to help us get there.

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

And it is in guidance too, the data center.

[Amir Razban, Analyst at JPMorgan Chase & Co.]

Okay, great. And one more if I could, you know, how prepared do you think you are versus like an A&P that has that core site asset worth [indecipherable], how do you kind of view that?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Well, prepared for what -- I mean I think it all -- it all remains to be seen how robust the edge at the tower site business get and that's what we're focused on. So from that perspective, I think our measured approach is the right one for us.

[Amir Razban, Analyst at JPMorgan Chase & Co.]

Great, thanks guys.

[Operator]

And next we'll go to the line of Simon Flannery with Morgan Stanley.

[Simon Flannery, Analyst at Morgan Stanley]

Great. Good afternoon. Jeff, thanks for all the comments. Great to hear the momentum in the business, I wonder if you could talk about the sustainability of this, we've heard from both Verizon and T-Mobile that capex peaks this year and then falls fairly sharply and how do you think about your medium-term outlook given some of those commentary and perhaps relatedly, we've seen very strong fixed wireless results, how do you think that might impact some of their builds, some of their densification over the coming years? Thanks.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Yeah, I think it is going to be a multi-year endeavor, Simon, particularly keeping in mind that the C-band clears in phases over years. So there is really going to be multiple years still ahead where C-band deployments are going to have to take place. I take our customers' comments at face value. I can tell you though that there is a lot of work to be done and at least on the C-band deployment side of things, they're just in their infancy. It can only be a multi-year endeavor, so I'm not sure how that will be impacted if at all by the fixed wireless initiative and the spend there. It's really, obviously, one is primarily a mobility product and the other is a location-driven product, but I don't -- we've not seen any signs that the success in the fixed wireless area is going to impact the mobility spend.

[Operator]

And next we'll go to the line of Ric Prentiss with Raymond James.

[Ric Prentiss, Analyst at Raymond James]

Thanks. Good afternoon, everybody.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Hi Ric.

[Ric Prentiss, Analyst at Raymond James]

Hey. Want to follow up on some of the comments about the international churn, you mentioned, you called out the Digicel Panama, how much of that should go into next year, though, if you said, that's the impact for the rest of this year, how much should we think about that kind of tail next year. And update us as far as what's going on with Oi. We've seen obviously a lot of press releases, looks like some transactions are finally coming to pass Brazil with Oi.

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Yeah, so the $6 million of incremental churn for Digicel represents about 3 quarters. So there'll be another couple of million dollars into next year. It's probably also a little bit of additional Ric because we were already assuming some Digicel churn previously not associated with this liquidation just as they were shutting down certain sites because they were obviously already having some issues. So there's probably an extra million or so in addition that would flow into next year.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Yeah, on the Oi situation Ric, the sale has closed, Oi Mobility Wireless has been sold in parts to Claro, TIM and Vivo, they've all got some cell sites, they've all got some subscribers, only TIM and Vivo got spectrum however, because Claro was already at their regulatorily prescribed limits, and where it all stands right now is that each of the recipients or winner -- winning bidders or the 3 remaining need to prepare and file with the regulators some various plans and answers to some conditions and restrictions that we'll put on the approvals. That has not happened yet. We'll be watching with great interest what those filings will be, but also keep in mind now, we have the 5G auctions done in Brazil and the spectrum ready to be released and with some time limits on deployment at least around the major capital cities.

[Ric Prentiss, Analyst at Raymond James]

Okay. And you also -- obviously CPI is benefiting escalators, how should we think about how often they get updated, what's squarely at in the process of you guys, well, maybe also just update us on where you're seeing CPI in Brazil and South Africa, but just help us understand the timeline as far as where the benefit in escalators is at currently, where it might head. And also, is there anything on the cost side?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

The CPI in Brazil right now -- for us -- for our average for the year went to about 9%. The actual rate is higher than that, it's closer to 11% I believe right now. And the timing is really tied to when the leases individually escalate. There are some larger concentrations because of some of the acquisitions that we did. Those tend to be in the fourth quarter and the second quarter, but really it's just a function of the time that the anniversary date of each individual lease and what the CPI looks like on a year-over-year basis at that point in time.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Keep in mind, on the expense side, Ric, the ground leases, which are the single largest component in Brazil are a pass-through item. So we have that protection. Where we are likely to see the impact is of course on the labor side and we will see that because of the the way the Brazilian employment laws are written. But again, I would point out that given the operating leverage in the business, the percentage of employee costs against revenue was extremely small, so we have some great elasticity to be able to absorb any employee-related CPI increases.

[Ric Prentiss, Analyst at Raymond James]

Makes sense. Thanks for that. Have a good day.

[Operator]

And next we'll go to the line of David Barden with Bank of America.

[David Barden, Analyst at Bank of America Merrill Lynch]

Hey, guys. Thanks so much for taking the questions. I guess the first one maybe for you Brendan or Mark. With respect to the guidance expectations for rate movements for the rest of the year and the impact on the net change in the updated '22 guide, could you kind of give us a sense as to what we're originally baking in and what maybe is net incremental probably headwind presumably on the 8% remaining variable rate debt. And then the second piece would be just on the service revenue kind of outlook, obviously, pretty healthy activity across the board. We've talked in the past about the margin mix, whether it's earlier stage. It's more human capital, higher margin, later stage, is more labor-related and lower margin, where are we in that curve and where do you see margins in that business going? Thank you.

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Yeah, on the rate impacts, the impact is primarily due to, one, an assumed increase in CPI rates, and two, slightly more of our revolver being drawn during the course of the year associated with some of the incremental spend that we've just incurred or have under contract. So if you look at our capex guidance, it's up a little bit. So that that requires that along with the share repurchases that we did that weren't assumed before that we have a little bit more capital drawn and because it's floating rate and the CPI is increasing, that's really driving the increase in our net cash interest expense guidance that we gave. Otherwise, there's really no no changes to that.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Yeah, on the services, Dave, the biggest issue is not so much the margin inside each of our 2 services segments, it's really the mix of the 2. Site acquisition has historically been the higher margin business. Construction has been a lower margin business. I will tell you though that the margins that we're currently experiencing in both segments relative to our history are very good maybe pushing all-time highs. But really the biggest driver of where margins come out, it's the mix between site acquisition and construction services, although we're -- again we're very, very happy with where each of those are performing. One of the ramifications of a big services quarter though given the fact that it is a lower margin business is its impact on our adjusted EBITDA margin. So for those of you who are wondering why that is where it is this quarter, it's really because of the large amount of services revenue that we booked this quarter.

[David Barden, Analyst at Bank of America Merrill Lynch]

Okay, that's helpful. Thanks, Jeff.

[Operator]

And next we'll go to the line of Nick Del Deo with MoffettNathanson. Your line is open.

[Nicholas Del Deo, Analyst at MoffettNathanson]

Hi, thanks for taking my questions. First, I kind of turn it back to Brazil and the Oi situation. Can you talk at all about the conversations you've had with customers and anything they said about their plans to invest behind the assets we're acquiring and are any of the initial goals that they've laid out for site decommissionings, I think at least TIM has talked about that or have those been consistent with your expectations?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Yeah, I think we're still of the same mind in terms of the aggregate exposure, which Mark jump in here and make sure I say the right numbers of $20 million to $30 million over the life is what we think our exposure is.

[Mark DeRussy, Vice President of Finance at SBA Communications]

Yeah. So nothing has really changed there Nick as what we have seen in the US that actually migrate customers and truly decommission sites is a little more complex, it takes a little more time than people think, now that's really timing comment, we don't -- we think the ultimate numbers will be what Brendan just said, but we really don't have any specific instructions from them as of this point out. We do expect that as the year progresses, we will begin to get more clarity on the timing and final amount that we will be looking at, but they are, you know, on the other side, the 3 now nationwide carriers are all active to varying degrees, with the new spectrum deployments.

[Nicholas Del Deo, Analyst at MoffettNathanson]

Okay. Okay, that's great. And then, maybe turning to the data center topic, I think to date, you've described what you're doing is buying assets to learn about the business, learn about the edge opportunity. Do you feel like you currently own a sufficient number of data centers in the US to fulfill that goal? Or should we expect you to pick up some more in the future and maybe in different geographies or different size or something like that?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Yeah, I think, as our experimentation and learning process continues to move in a positive direction, it would not be impossible to see us buy a couple of more data centers, but I don't think we would ever get to the point where you would see -- I mean it won't ever get close to 1% of enterprise value. I don't believe.

[Nicholas Del Deo, Analyst at MoffettNathanson]

Okay, that's helpful. Thank you, Jeff.

[Operator]

And next we'll go to the line of Michael Rollins with Citi.

[Michael Rollins, Analyst at Smith Barney Citigroup]

Thanks and good afternoon. First question for me was curious if you could unpack the merger churn in the US from Sprint and T-Mobile that was within the first quarter results as well as what's in the guidance for 2022?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Yeah, what's in the guidance for 2022 is now approximately $27 million. I think we previously told you $30 million. Obviously, we lowered our our full-year number by $3 million. The first quarter piece of that -- I don't know -- let me check that and get back to you and I'll mention it on the call if we are done with you before then.

[Michael Rollins, Analyst at Smith Barney Citigroup]

Sure. And then just, as you're thinking about the year, domestically, just curious how you're thinking about that 3.7% net growth that you did in 1Q relative to the full-year guidance on calculating the numbers right on Slide 4 I think it is -- it also looks like for the full year, organically, you're looking for about that amount, but you know with churn possibly ramping higher as a contribution, so just kind of curious how you're thinking about the gross moving through the year and the net and what the contributions that may be layered in for DISH and AT&T as you're just thinking about that full year growth expectation for 2022?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Well, I know -- Brendan, you could get to the net, but I know that the gross number. Mike, we expect to grow sequentially as we move through the year.

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Yeah, we do expect the gross to move up sequentially. We also expect the churn, though, to move up sequentially during the year obviously as indicated by the first-quarter shift here, there is some potential that our expectations around timing are off on the churn, but our expectation on what's in our guidance shows that it's increasing. So the net will be a modest increase, maybe flat to modest increase quarter-over-quarter going through the year. In terms of the mix, I don't think we want to get into the individual carriers that make up the mix, I think we've been pretty clear in the past, that's on a lot of the last few quarters a lot of the lease-up, one of the significant contributors there was DISH in terms of their new agreements. So obviously they would be a nice component of that growth. But all the carriers have contributed to the lease-up activity. So, they're all in the mix.

[Michael Rollins, Analyst at Smith Barney Citigroup]

And how does the -- when we think about the longer-term leverage targets for the business, you have a rule of thumb in terms of rate to a certain level, then leverage to be a certain level or is your view of leverage less dependent on the rate environment within [indecipherable]?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Well, clearly, there would be a rate level which would -- and I kept -- and I don't really want to get pinned down on what that is. But clearly there would be a rate at which we would look at different leverage levels. But beyond that, Mike, what we're looking at is our dividend, our dividend payout ratio, how much our EBITDA growth looks to be. So, I mean, we really do try and be very thoughtful and take into account everything that should be taken into account, but I mean on an absolute basis, of course, would be some interest rate that if we thought it was going to be maintained and sustained for long periods of time, if it were materially higher than where we are today, would cause us to revisit our leverage targets.

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

And Mike, before you go, let me follow back up on your question about how much Sprint, in the first quarter, it was approximately $4 million of impact in the quarter. So, a little over 1% of the roughly 2.7%.

[Michael Rollins, Analyst at Smith Barney Citigroup]

Thanks very much.

[Operator]

And next we go to the line of Sami Badri with Credit Suisse.

[Sami Badri, Analyst at Credit Suisse Group]

Great, thank you. I just wanted to get a little bit of an update as on the MLAs and I think what we'd all kind of could really use maybe a little bit more color on how much activity is falling into those MLAs versus out of those MLAs with the same customers that actually sign them. Can you just give us a little bit of color or more color than normal on what the mix of in versus out of MLA looks like?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Well, I think it's 100% for every customer that we have an MLA with is somehow touched by the MLA, so that's DISH, Verizon and T-Mobile and then we don't have one with AT&T. It's not really a situation where some of it's covered and some of it's not per carrier.

[Sami Badri, Analyst at Credit Suisse Group]

Got it.

[Mark DeRussy, Vice President of Finance at SBA Communications]

And just to be clear, our MLAs though are still based on specific activity from those customers on equipment specificity, they're not just broad open-ended thing.

[Sami Badri, Analyst at Credit Suisse Group]

Got it. The other thing is, last quarter you stated that the 3.45-gigahertz spectrum will require incremental radios to C-band, do you still hold that view?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

We do, although, I know that they're working on an integrated one as well, which will come out at some point.

[Sami Badri, Analyst at Credit Suisse Group]

Got it. And then just to be clear, right, just the -- they do work on an integrated radio that -- that does still have scope for amendment because they're riding on 2 separate -- on different spectrum bands, or is there a different type of negotiation that'll take place if they came out with that?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Well, it will be primarily driven by what the equipment looks like and how it stacks up compared to, if anything is coming off, that's a swap; if it's not, then we would look at the equipment and price it accordingly based on height, weight, and wind load.

[Sami Badri, Analyst at Credit Suisse Group]

Got it, got it. Thank you for the color.

[Operator]

And next we'll go to the line of Greg Williams with Cowen.

[Greg Williams, Analyst at Cowen]

You know what multiples look like given the rising rate environment, private multiples, and the geopolitical landscape by region, generally? Second question just on the record service revenues, are you seeing any labor or logistic bottlenecks in the current environment in keeping up with this record activity? Thanks.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Greg, I think we missed your first question, you didn't -- you were -- the first part of it got cut off.

[Greg Williams, Analyst at Cowen]

Sorry, the M&A landscape, what multiples are looking like through the regions?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Yeah, they are not increasing. So that's -- we're thankful for that. There are some signs that the current interest rate environment is going to have a depressive effect on prices, as you know, Greg, it takes a while for current market conditions to factor through to private market sellers. However, it is headed in that direction where obviously rates should and I think will impact price over time. On the supply side of equipment and labor, I don't want to jinx things, but as of today, we are not seeing any material impact on either the supply chain side or the labor side for our business.

[Greg Williams, Analyst at Cowen]

Got it. Thank you.

[Operator]

And next we'll go to the line of Brett Feldman with Goldman Sachs.

[Brett Feldman, Analyst at The Goldman Sachs Group]

Great, thanks for taking the question. Jeff, for the vast majority of SBA's history as the US tower operator, your fixed escalators, which are generally I think in the low 3% range have exceeded inflation and that's obviously not the circumstances we're in today and who knows what the long-term view is going to be, but I'm wondering if we've been in an inflationary environment long enough for you to see any impact to your business or maybe to change how you think about it. So just as an example. I'm wondering, is there any increased mutual interest between you and your carrier customers maybe finally moving to a CPI based escalator model in your leases, if you are doing build-to-suits in this environment, are you actually still doing them at the historical escalator or is that changing then maybe just bigger picture if if we're not likely to see a change in the escalation model and we do remain in an inflationary environment, could that suggest that you may have a preference you're continuing to invest increasingly outside the U.S. where you can actually develop and acquire towers that can escalate in line with CPI? Thanks.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Yeah, I think I'd characterize the state of the escalator issue with our customers, Brett, is one where I think certainty and a fixed number benefits both sides, even though, clearly in a year like this with a fixed escalator, one party wins, the other loses, but that's a very temporary kind of condition, and over time, the Fed has a mandate to reduce inflation back to 2% or less. So I really don't know that there is a lot of appetite on either side to change that around really because if you have a very, very big inflation year, the person on the CPI end of that, whether it's us on ground leases or our customers on the tenant leases, they're not going to be happy. So I think we're pretty satisfied with state of the world as it currently exists. And I don't think we consciously are making international decisions relative to U.S. decisions with any kind of belief that this is better because we get CPI escalators. The traditional economic theory is if there is higher inflation in those markets, the currency is going to trade off. So we don't really think that that is a reason why to favor international over the U.S. The reason we go internationally is because we have a capital allocation and a target leverage, which we think is one of our principal creators of shareholder value and we haven't been able to find enough to do in the U.S. and we found some very, very good things to do internationally, and I think that will continue to be the primary motivation.

[Brett Feldman, Analyst at The Goldman Sachs Group]

If I could ask just one quick follow-up question, I believe in the U.S., -- what we've typically believed in U.S., is that the escalation clauses on your ground rent was reasonably similar to what you see on the tower side, so kind of a fixed 2% or 3% escalator, is that the right understanding or could we see a mismatch any point over the couple of quarters?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Now we've -- we've generally matched off, when I say generally, I mean we've substantially every single U.S. tower that is ground leased has as a fixed escalator and they typically average less than our average tenant escalators. So we feel and of course you know that's our single largest source of expense in getting to the tower cash flow line is the ground leases. So we feel pretty well protected there, Brett.

[Brett Feldman, Analyst at The Goldman Sachs Group]

Thank you.

[Operator]

And the next, we'll go to the line of Walter Piecyk with LightShed Ventures.

[Walter Piecyk, Analyst at LightShed Ventures]

Hey Jeff. And this first question, I'm going to send over to Brendan. You said to a prior question that Sprint churn was $4 million. I mean if you were rounding up there, that implies. I think a churn rate for the rest of your domestic business, but I couldn't find that low unless I went back I guess for a quarter or 2 in 2018 when it was like 1.7, 1.5 [Phonetic] first, second quarter, is this a sustainable number because that's just much lower than we've seen for several years?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

I mean I think it's -- so that what's left is about 1.5%, maybe 1.6% if you exclude the Sprint piece and I don't think that's lower. I mean, we've actually been -- we've been much lower than that. If you go back a couple of years ago where we were below 1%. We've historically been somewhere in that usually between 1% and 2%, sometimes lower. I don't think it's abnormally below --

[Walter Piecyk, Analyst at LightShed Ventures]

You know -- it's what -- the absolute dollars, the numerator in that calculation has been flat for a couple of quarters now, which is as a percentage is going down.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

I think there is a different reason. I think what you're looking at is the kind of the gross churn that historically includes -- has always included some kind of consolidation churn.

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Yeah, maybe that obviously we've had Metro Leap and Clearwire. We had iDEN related churn. So there's --

[Walter Piecyk, Analyst at LightShed Ventures]

If you look at all these years [indecipherable], you've always had something in there, maybe you are like actual core core stuff which you don't really report was that low. But as far as reportable churn numbers, it's never been that low, well, I can say, because you don't break -- you haven't broken out Sprint --

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Apples to apples, you have to include the Sprint. I mean that's the --

[Walter Piecyk, Analyst at LightShed Ventures]

So that was my second question, which is $4 million is fine, but you're -- if you look at $30 million for the year, you still have to step that Sprint component up pretty at some point like, is it -- was part of this just the delay in turning off CDMA, which quarter do you think you're really going to see, I mean, obviously -- I think last year you were doing like 2 a quarter, somewhere in that ballpark. So 4 is not like it's no step up. But are you expecting a larger step up in Q2 or Q3 do you think?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

We're expecting a larger step-up as we move throughout the year. So, I mean just incrementally I think stepping up because it just builds over time, but it's really dependent on when those leases turn down, termination dates and everything else. So --

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

And it's quite possible that you see it increase each succeeding quarter.

[Walter Piecyk, Analyst at LightShed Ventures]

Okay. And then just same basic question for amendments and colo, you think the target is whatever 60-something for the year, 65 I think. That would imply a much bigger step-up sequentially than maybe what we saw in the first quarter. Any sense on kind of when you're going to see a more material step-up from quarter to quarter? Or do you think it's going to be somewhat linear from here?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Yeah, no, it's going to step up, but I think, mostly in the second half of the year. There'll be a modest step-up is our expectation next quarter and then more material into the third and then even further into the fourth quarter.

[Walter Piecyk, Analyst at LightShed Ventures]

Got it. Thank you. And next we go to the line of David Guarino with Green Street. Your line is open.

[David Guarino, Analyst at Green Street Advisors]

Thanks. Just going back to the M&A conversation, you mentioned, multiples aren't increasing, but I think it's fair to say that they're rich today and we've seen some deal terms on a few recent transactions that really appear to benefit the M&O sellers. So I was just wondering if you could help us understand how are you guys competing for deals now that you're clearly bidding more aggressively. Is that causing you to adjust your underwriting at all?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

No, we don't adjust our underwriting, we may do fewer deals, David. But if you look at the history of what we've done, we like what we've done and we'll continue to exercise the same discipline, and I think when you -- if you really understand what we're about, it's about creating value for our shareholders. There aren't particularly great, as we see them, strategic benefits of just being big in a bunch of different countries, we are much more interested in the financial characteristics and investment goals of each and every transaction and we lose a lot, but we get enough to generally satisfy our 5% to 10% portfolio growth goals and we're going to continue to operate that way.

[David Guarino, Analyst at Green Street Advisors]

Okay, that's helpful. Maybe switching gears on the '22 guide. I was wondering, is there conservatism in your exchange rate forecasting for the Brazilian real, it looks like your full-year guidance is below where the current exchange rate is, and we've got what, 8 months left in the year. So I just wanted to know how do you guys think about forecasting exchange rates?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

We typically will use whatever the forwards are that you would generally pull from Bloomberg some sort of average of a number of institutions that publish projection. The one thing I can assure you of David is that we will be wrong on what we assume. I don't know whether it will be wrong to the positive or the negative, but it's very hard to nail down, so we use what the experts are staying at any given time, but even since we kind of put our numbers together, which is at the end of last week, just in the last 2 days, we've seen the currency weaken relative to the dollar. So it's a little bit closer, so if you basically if you look at Brazil, our average for the balance of the year that we've assumed is essentially 5 to 1 and I think today it ended up for 4.88 or something like that, so it's fairly close to what the spot rate is.

[David Guarino, Analyst at Green Street Advisors]

Okay. I appreciate the humility, thanks for that.

[Operator]

And next, we'll go to the line of Eric Luebchow with Wells Fargo.

[Eric Luebchow, Analyst at Wells Fargo & Company]

Hi. Thanks for squeezing me in. So wondering if you could talk about what you're seeing from DISH. I mean they publicly said they think they're about 6 months behind where they originally expected it to be. So just wondering if either the actual site construction when they hang equipment or the date certain under your contract with them would have much of an impact on your assumed leasing outlook for the year. And then just more broadly, are you seeing their leasing concentrated in just a few markets? Or is it pretty broadly distributed across your portfolio today? Thanks.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

I could tell you that the activity level is pretty broadly distributed. And we do have a construct with DISH where once the lease is signed, revenue recognition for us begins at either a construction milestone or a date certain. And it's really the -- to actually look at all that and synthesize that and turn it into guidance is a bit of an art. So there'll be some possibilities that things move around there. But for the most part, as we move through the year, things are known with a greater degree of certainty. So there's some opportunities for some movement. But for the most part, we feel pretty, pretty good about DISH's contribution.

In terms of your comment about them being behind by six-- I mean maybe that's their own internal goals and projections, but I would repeat what we've said now for, I think, the better part of the year, which is they're very active, actually busier with us than we thought they would be for a rolling 12-month period. And they continue to be very, very busy and driving hard towards satisfying their June 2023 regulatory obligations.

[Eric Luebchow, Analyst at Wells Fargo & Company]

Great. Appreciate the color.

[Operator]

And next, we'll go to the line of Brandon Nispel with KeyBanc Capital Markets.

[Brandon Nispel, Analyst at KeyBanc Capital Markets]

Okay. Great. Thank you for taking questions. Maybe two, one follow-up though. Could you share what the backlog of lease applications was? What was that up this quarter? And if we just held that flat looking at the comparables in sort of the second and third quarter, what would that growth rate look like?

Then secondly, following up on Walt's question, it looks like you had about $12.6 million in U.S. organic growth this quarter on that 6.4%. Do you still think you can get to a low $20 million number exiting this year? And then is that a reasonable number to run rate into 2023? Thanks.

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

Okay. On the backlog question, just to be clear on how we evaluate backlog for our leasing business, we're looking at the number of applications for new leases and amendments. Obviously, the pricing may vary depending on exactly what they do and sometimes that pricing has to be negotiated. So it's not necessarily dollar-based. So I think I can't -- the number of applications is up. So when we say it's up, that's what we're referring to. So I can't really give you a -- what would the lease-up be if it were the same for the last few quarters.

On the leasing dollars question in the fourth quarter, we do think we can get to the low-20s by the end of the year. As to whether that would be a run rate going forward is partially dependent on activity levels for the balance of this year, which we think will remain fairly strong. But as of today, I can't comment on what next year's number will be.

[Brandon Nispel, Analyst at KeyBanc Capital Markets]

Okay. Thanks for taking the questions.

[Operator]

And next, we'll go to the line of Matt Niknam with Deutsche Bank. Your line is open.

[Matt Niknam, Analyst at Deutsche Bank Aktiengesellschaft]

Just two quick ones, if I could. First, on M&A. I know you mentioned, I think, 358 sites acquired are under contract as of the end of the quarter. Any color you can share in terms of where they're located and when they're expected to close?

And then secondly, on the dividend payout ratio, I know you mentioned in the release that you're still under 25%. And I know you've talked about 20% annual growth the next several years. Any sort of update in terms of where you'd like to get that payout ratio to over time? Thanks.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Well, we like it low because it gives us plenty of opportunities, including stock repurchases, which we think -- I think the execution and the allocation that we have, including setting the dividend really has served our shareholders well. So -- but at the same time, Matt, we want to continue to be an industry leader in terms of our dividend growth rates, which is why we set things to start at a low level. So really, it's kind of the balance of those two which will ultimately drive where we set the dividend going forward, but I think you would agree at 25 -- less than a 25% payout ratio, we have a lot of room to increase the dividend materially in the years ahead. What was your first question?

[Brendan T. Cavanagh, Executive Vice President and Chief Financial Officer at SBA Communications]

M&A under contract mix. It's largely international. There is some domestic and some international. Was there more to the question?

[Matt Niknam, Analyst at Deutsche Bank Aktiengesellschaft]

Any color you can share in terms of country or region, if possible?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

They're all existing markets.

[Matt Niknam, Analyst at Deutsche Bank Aktiengesellschaft]

Okay. All right. Thank you, guys.

[Operator]

[Operator Instructions] And we do have a question from the line of Jon Atkin with RBC.

[Jon Atkin, Analyst at RBC Capital Markets]

Was interested in talking a little bit about other types of infrastructure. You did the PG&E deal. There's rooftops, but on kind of non-conventional macro towers and opportunities you see within that segment? Thanks.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

We continue to pursue a variety of different things, Jon. We have a growing indoor DAS business. We have a growing connected venues business where we get in and actually kind of build out the telecommunications infrastructure in new developments. We have added some rooftop sites for sure. And we have picked up now three datacenters.

None of that stuff comes close to being anywhere near material compared to the basic macro tower business. And while we are seeing good return on invested capital in all these areas, and we will continue to look at them and believe that we're picking areas that will scale over time. I mean we are, for all intents and purposes, for the foreseeable future we are a macro tower company.

[Jon Atkin, Analyst at RBC Capital Markets]

So alternatives like rooftops, transmission lines, utility?

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

We're buying rooftops. We are developing rooftops. We're playing in pretty much all the areas other than fiber, outdoor small cells on a big basis and undersea cable. But none of it is -- gets to the point where it's going to occupy a material portion of our financial results in the foreseeable future.

So the question then, I guess, should be, why are you doing it? And the answer is, well, because of where we are, who we are and what we've done over the years, we do get a lot of ancillary opportunities. And these are good assets, exclusive assets that are going to produce for us a good return on invested capital and are generally pursued and occupied by folks who are otherwise engaged in the macro tower business.

[Jon Atkin, Analyst at RBC Capital Markets]

Thanks very much.

[Operator]

And we have no further lines in queue at this time.

[Jeffrey A. Stoops, Director, President and Chief Executive Officer at SBA Communications]

Great. Well, I want to thank everyone for joining us for what you heard was a great first quarter. And we look forward to reporting continued success as we move through this year. Thank you.

[Operator]

[Operator Closing Comments]